Tag Self Build

Tag Self Build

Can I get a mortgage to purchase a plot of land?

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Time to state the obvious, when you’re planning to build your own home the first thing you need to secure is the land to build on.  The question is can you get a mortgage to help you buy the land?

The answer is… maybe. You’re beginning to wonder why you’re reading this aren’t you? But stick with it.

Most Self Build Mortgage lenders want you to get your build to at least foundation stage prior to releasing any monies. However there are lenders who will allow you to purchase or release funds from the value of the land.  There are, as you might guess, a few stipulations and expectations.

What makes a site suitable security for a mortgage?

Note that I asked what makes a ‘site’ suitable security for a self build mortgage and not simply ‘land’.

First of all  lenders will expect that the site has full Planning Permission and normally passed Building Control before they will lend a penny. For those buying a property will Planning already approved it’s worth noting that lenders are not keen on lending to purchase a property only to have the plans resubmitted for further changes.

How much will they lend?

It depends on the lender on how much they will release however a good rule of thumb would be between 50-75% of the value of the plot of land. For example if your plot values at £100,000 then you could get anywhere between £50-75,000.

How do Self Build Mortgages Work?

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So you’re thinking about self building your own home. After months, possibly years of planning your dream home it’s time to start organising the practicalities of the financing. This may be your first home or you may have bought a property previously and have a good understanding of how normal mortgages work. Either way the next question on soon-to-be Self Builder’s lips is how do self build mortgages work?

Self Build Mortgages and their stage releases

The first thing you need to know is that your money will be released in stages.  These stages will be released as the build progresses and will depend on the lender and the type of build. It’s important to understand that you will only pay the amount you have drawn down at any particular stage of the build i.e. you may have applied for a mortgage of £250,000 however if your first stage release is for £50,000 then you monthly repayments will be based on only the £50,000 you have borrowed so far.

Every lender has their own way of arranging the stage payments however the table below serves as a good guide to how many self build mortgages will structure the stage releases.

Stage Release for different constructions

Brick & Block Timber Frame
1st Stage Purchase or release of funds from of land Purchase or release of funds from of land
2nd Stage Foundations Foundations
3rd Stage Wall plate level Kit erected
4th Stage Wind & watertight Wind & watertight
5th Stage Plastered Plastered
6th Stage Completion Completion

 

With most self-build mortgages and certainly all those in Northern Ireland (NI) the stages are released in arrears.  Depending on the lender money may be released from the value of the land or to purchase the land.  From there on any work required to get to the next stage must be completed prior to money being paid out from the self-build mortgage i.e. in arrears of the work being done.  At each stage the quality of the work must be assessed and signed off by a qualified surveyor.

As the money is released in arrears it is important to have sufficient savings to produce a deposit for the land (if purchasing) and to fund the early stages of the build.  However, if you have been gifted or already own the site you can re-mortgage to help provide funds to kick-start your self-build.

In England there are a few self build mortgage providers out there willing to look at providing the funds in advance of each stage.  This means the funds are released at the start of each stage rather than the end.  This is obviously beneficial to your cash flow and is worth considering when it’s available however this generally comes at an additional cost.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

What is a Self Build Mortgage?

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A Self Build Mortgage is a mortgage loan generally secured on a site, run-down property or barn conversion with full Planning Permission and Building Control.   The loan is based on the current and end value of the property.  Money is released in stages as the build progresses and rarely exceeds 75% loan-to-value* (LTV).

Each Self Build Mortgage lender has individual views on the risks involved and generally structure their offering accordingly.  Therefore careful research is required before applying for a mortgage.

*Loan-to-value is the ratio of mortgage debt to property value i.e. if the mortgage is £100,000 and the end value of the property is £200,000 then the LTV is said to be 50%

The first 5 questions we’re asked on Self Build Mortgages

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5 questions we’re asked on Self Build Mortgages

There are many questions our clients ask on self-build mortgages but here are the 5 most popular:

1. What are Self Build Mortgages?

Self-Build mortgages are exactly what they sound like, mortgages designed for those people who intend to build their own house.  Despite the name Self-Build they are also suitable for people who are having a house built for them and are required to pay their builder in stages.

2. How do Self Build Mortgages work?

A self-build project usually kicks off in one of two ways, with the purchase of a plot or raising finance on an already owned plot of land with at least outline planning permission.

Funds are released in 5-7 stage payments at specified build stages, usually in arrears i.e. you must complete the work to get to each stage before they will release the funds.  Each stage release is subject a revaluation and there is usually a set max loan-to-value at around 75%.

The self-build mortgage lender will usually hold back around 10% of the mortgage amount until you get your completion certificate.

3. How much can I borrow on a Self Build Mortgage?

As with any mortgage application this depends on your own personal circumstances, some of the factors that will come into play are:

  • Whether you are applying on your own or with a partner
  • Any outstanding monetary commitments
  • Any existing mortgages including Buy-to-let
  • Where you are planning to live while you build your new home

Affordability is rarely as simple as a multiple of your income anymore but a good rule of thumb for the maximum borrowing for an ideal applicant is 4 x joint income.

4. When should I apply for a Self Build Mortgage?

In a Self Build project it can be hard to decide which part of the process is the cart and which is the horse but in this case it is essential to find out your budget.  You need to know right from the start how much you can borrow so that you ensure that your home can be built on the available budget.

5. How long do I have to complete my self build?

With most lenders you have up to 18 months to 2 years to complete your build.

 YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Who are the Self-build Mortgage Lenders in Northern Ireland?

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The self-build mortgage are a niche market in general but add that to the usual restrictions that come along with the Northern Ireland market and you don’t have many lenders to choose from.

Who will provide a mortgage for a self-build in NI?

Well in alphabetical order the lenders offering self-build mortgages across the province are*:

  • Bank of Ireland
  • Danske Bank (formerly Northern Bank)
  • Ecology Building Society
  • First Trust Bank
  • Halifax
  • Progressive Building Society
  • Ulster Bank

* List up to date as of 28/04/2013

So why do you need a mortgage adviser when you could look up 7 websites in 15 mins and know the best deal?

That’s simple, a good mortgage adviser will know the lenders that are willing to lend. They will match you and your self build project to the most suitable lender. Every lender has individual requirements that they want their borrowers to meet for a standard mortgage but this is even more prevalent for self-build mortgages.  For instance some lenders will release money on the land whereas others will expect you to reach wind and watertight before releasing a penny.

A good mortgage adviser will also save you time and frustration when it comes to the drawn out mortgage application process.  A typical self-build mortgage application can take up to 4-10 weeks in the current market and a mortgage advisor can take most of the burden off your hands.

If you know of any other lenders in the NI Self-Build Mortgage market why not leave a comment and we’ll update the list accordingly.

Images courtesy of Atsushi Tadokoro on Flickr

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

5 tips for Self-Build Mortgage Borrowers

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5 Hints and Tips on Self-Build Mortgages

We all have a dream home in mind and some are lucky enough to realise that dream. In line with the rest of the mortgage market, self-builds have suffered over the last couple of years.    But self-building is not easy and certainly is not for the faint hearted.

This post will help you get a few steps closer to building the home of your dreams by guiding you through the self-build mortgage maze.

1. Budget, Budget, Budget

Despite improvements in market conditions it is still difficult to get a standard mortgage, a self-build mortgage brings added complexities. Not only is the lender underwriting your personal financial position but they’re also evaluating the feasibility of the self-build project.

The lender will want to know

  • What is the project estimated to cost?
  • Have you got contingency funds available should the self-build costs run over?
  • Do you own the land or do you need to purchase the land?
  • Where will you live in the meantime and can you afford it?

Your borrowing will be limited, up to a maximum 75 per cent of its current value, and for the build costs, again with some lenders you can borrow around 75 per cent of the end value. If you already own the land or the property, you can borrow against the current value of the plot provided it has planning permission.  This mean you can get funds to get the project started.

2. Plan to Succeed 

This might seem obvious but a lender will want to see:

  • Detailed plans for the property
  • A projection of costs
  • Planning permission details
  • Site Insurance

The self-build mortgage applications process anything up to 1-5 months from start to finish so you need to plan ahead.

Your self-build mortgage will depend on things like:

  • Build type i.e. timber frame, traditional or other
  • Construction method
  • Materials
  • Location
  • Schedule of costs

These will not only affect how much you can borrow but when you will receive each stage release.

During the term of the build most lenders will release the money on an interest only basis, which can be a big help with budgeting however it is essential you can afford the full capital repayments at the end of the build.

3. Timing is Everything

Self-Build Mortgages release the money for the build typically in 5-7 stages from start to finish. A Qualified Professional is required to inspect the quality of the work at each stage before the lender releases funds. This helps protect you and the lender from shoddy workmanship. This, of course, adds another cost to the build and needs to be factored into your plans

Most lenders release each stage in arrears i.e. you must have the work completed prior to release of the funds for each stage. This can cause many prospective self-builders problems as you must have enough cash to fund you through each stage.

Advance stage release mortgages where you get the money at the start of each stage are few and far between but speak to a self-build mortgage adviser to find out if there are any available to you.

It is imperative to know when the first stage release is for your project, every lender is different and it is essential you can get to this stage.  Typical first stages are:

  • Purchase or release of equity from the land
  • Foundation or floor level
  • Brickwork to wall plate level or roof level
  • Wind & watertight

As you can see there is a wide range and a misunderstanding could spell disaster for your build.

4. Review your Mortgage once you are complete

Self-build mortgage rates are typically variable rates between 5 and 6 per cent. When compared to current standard mortgage rates, this seems very high.  The higher interest rate is to account for the greater risk the lender is taking on during the build.

Once the build is complete you may be able to switch to a lower rate on a standard residential mortgage. Remember a self-build mortgage is limited to 75% loan-to-value and hopefully you will have added some equity during the build which could leave your end loan-to-value somewhere closer to 60%.  This should give you access to some of the best rates available on the market however tread carefully as you may be subject to early repayment charges.

5. Get Independent Mortgage Advice

Of course we would say this but here’s why:

  • Self-build mortgages are a niche market for lenders especially in Northern Ireland and as such it is worth speaking to a self-build mortgage professional.
  • Deposits, rates, affordability and terms vary from lender to lender and this needs to be matched to your stage, project and planning permission.

You need to make sure you and your project matches the lender you approach and an Independent Mortgage Adviser is best placed to help

Image courtesy of Martin Pettitt on Flickr

 YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE